9 Factors That Are Pushing The Sensex To Great Heights
May 29, 2017

Within a span of 3 weeks, one of India’s most tracked stock market indices, S&P BSE Sensex rallied 1,000 points. You might think it’s been a return of just over 3% in a month, so what’s the big deal about it? This hasn’t been the first occasion when the Sensex has rallied this much in 3-4 weeks.

But a 1,000-point jump becomes a special event when country’s bellwether index scales to new highs amidst global uncertainties. As you might be aware, the Sensex recently breached 31,000 mark—a psychological milestone. During the journey of Sensex from 30,000 to 31,000 broader markets also did well. As the Economic Times dated May 26, 2017 reported, 3 stocks doubled 32 stocks gained over 50% while 167 stocks generated returns over 20%. This denotes how bullish investors have been on the Indian markets.

But before you too join the bandwagon, it’s time to do some assessment and see what led markets to rally so much in a matter of 21 days.

Given below are some of the primary reasons:

  1. Optimism as Modi-led-NDA Government published its 3-yr report card, and there’s optimism in the air as the Government enters the 4th year

    Since its coming to power, the Government has started a new initiative almost every day, to put India on a fast growth path once again. Creating enough jobs, strengthening rural economy, and reducing the reliance on agriculture sector have been the focus areas. Various initiatives of the Government on these fronts have been well received by the markets.
  2. Electorates have given the Government a pat on the back, applauded them for GST — a major tax reform — which comes to force from July 1, 2017

    The Goods and Services Tax (GST) is expected to change the face of manufacturing activities in India. Various sectors of economy are expected to benefit from the more transparent and effective taxation system. The Government has successfully led the negotiations with states, which is nothing short of a herculean task. The market seems to be giving thumbs up for the new found cooperative federalism. India’s GDP will receive a big boost once the GST is implemented. This will have a trickle-down effect on the economy.
  3. There’s enough political stability – in fact, the historic victory in UP Assembly Polls has boosted the confidence of the BJP

    After years of incisiveness, Indian masses are voting clearly in favour of national parties. With exception of few states, this trend has gotten reinforced several times in the recently conducted state assembly elections. UP elections was the epitome. Investors are hoping that this trend will continue even in 2019 Lok Sabha elections. Markets are going up sensing the long-term political stability in India.
  4. FIIs are exuding confidence in the Indian economy (under the Prime Minister, Modi’s leadership)

    The leadership qualities of Prime Minister Modi and business friendly policies of the Government are attracting Foreign Institutional Investors (FIIs) to Indian markets. Moreover, it’s giving rise to hopes of domestic investors which shied away from Indian markets for so long. In the recent times, they saved the markets from the negative effects of panic selling by FIIs.
  5. China’s loss is India’s gain.

    TThe markets are scaling to new heights in India; it being the fastest growing large Asian economy. In fact, the Chinese economy has been slowing down; it was recently downgraded on local currency and foreign currency issuer ratings by Moody’s (to A1 from Aa3) over rising debt. This is helping India in attracting foreign funds.
  6. Corporate earnings for some counters has been encouraging

    Shunning the worries of the impact of demonetisation, some vital sectors of the economy such as banking and consumer goods companies have been declaring encouraging results. This has rekindled the optimism about sharper than expected recovery in corporate earrings going forward.
  7. Inflation has come down and so has policy and borrowing rates

    There’s a consensus view in the bull camp at Dalal Street—moderating inflation and lower interest rates will translate into higher economic growth, in future quarters. Moreover, the implementation of GST is expected to be disinflationary.This points at more bullishness in upcoming quarters.
  8. Prediction of normal monsoon

    While IMD has predicted a normal monsoon this season, the Skymet (a private agency) has predicted a below-normal monsoon, especially in the latter phase of the season. It seems, investors have been relying more on the Government agency’s predictions at the moment. Normal monsoon would translate into brighter prospects for the rural economy and the overall demand would receive a big boost. Nonetheless, food inflation may moderate further—a good sign for urban spenders.
  9. The Federal Reserve is not in a hurry to raise interest rates.

    The further interest rate hikes in the U.S. are expected to be gradual. This will keep alive the surplus liquidity condition in the global financial system. And inflows in the emerging market, including those in India may stay fairly strong.
What approach you should adopt while investing at this juncture?

First and foremost, adopt a higher emotional intelligence in all financial/investment matters. Erase the feeling of having lost out on big wins, if you couldn’t participate in the current market rally.

Isn’t it time for you to analyse what went wrong and why you missed out on this rally?

Thus, choose to invest in Systematic Investment Plans (SIPs) which help you deal with the market volatility and ensure you are invested at regular intervals, irrespective of the index level.

If you are unsure about the equity-oriented mutual fund schemes to be invest in, try out new unbiased research report of PersonalFN.Funds discussed here may help you beat the market returns by far over next 7-8 years.

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